Term 2

Module lecturer

NEIL RANKIN

Aims

To provide an underpinning for those aspects of modern macroeconomic theory which involve nominal variables and their interaction with real variables, by providing an understanding of the role of money in the economy.

Learning outcomes

Students should gain a knowledge of, and an ability to construct and manipulate for themselves, theoretical models of how money affects the allocation of resources and of how changes in its level, rate of growth and variability affect macroeconomic variables such as prices, interest rates and output.

Contents

A number of methods of incorporating money into dynamic general equilibrium will be studied. These include: the cash-in-advance approach, the money-in-the-utility-function approach, and the overlapping-generations approach. These methods will be used to investigate – inter alia - the neutrality and superneutrality of money, the optimal quantity of money, and the effects of monetary uncertainty. The focus will be on ‘classical’ models without market imperfections such as price stickiness and unemployment, thereby complementing the Economic Analysis: Macroeconomics module, where such imperfections are given prominence.

Organisation

Two hours of lectures per week.

Pre-requisites

A sound knowledge of basic microeconomics, especially consumer theory and the principles of general equilibrium. Techniques such as dynamic programming will be used in some topics, but the emphasis will be on economic understanding rather than mathematical sophistication.

Key readings

No single textbook will be followed closely, but two which are particularly useful are Walsh, Monetary Theory and Policy (MIT Press, 2nd edition 2003) and Blanchard and Fischer, Lectures on Macroeconomics (MIT Press, 1989).

Assessment

2-hour written exam in May.